Restraining Government in America and Around the World

The Correct Rate for the Death Tax is Zero

I provided the opposing view to USA Today’s pro-death tax editorial today. In my column, I pointed out that the tax was inherently unfair, and also noted that it is a perverse from of double taxation:

If there were a prize for the most destructive tax, the death tax surely would be a prohibitive favorite. Known to policy wonks as the estate tax, this levy is a punitive form of double taxation that penalizes people for trying to create a nest egg for their children. …This matters because every economic theory — even Marxism — agrees that capital formation is the key to growth. Higher living standards are possible only if people invest by setting aside some of today’s income. But a punitive death tax, especially when combined with other forms of double taxation on capital gains and dividends, reduces the incentive to save and invest. Scholars who have examined this issue estimate that the death tax has reduced America’s stock of saving and investment by nearly $850 billion. Moreover, the death tax is a job killer, reducing employment by 1.5 million. Ideally, the death tax should be abolished. Nations as diverse as Russia, Australia and Sweden have killed this unfair levy.

In their pro-death tax editorial, the folks at USA Today offered a rather absurd argument about double taxation, claiming that the dead person is not taxed twice because he or she is dead when the death tax is paid:

Another canard is the double taxation argument, which goes like this: Someone becomes wealthy through hard work and enterprise, all along paying hefty taxes, and then is walloped again at death. This argument has one slight problem: Dead people don’t really pay taxes. Estate taxes are effectively paid by the people who are alive to feel the effect of the tax: the heirs.

Not only is this argument morally dubious, it is economically nonsensical. The death tax is bad for growth because it encourages wealthy people (who are still alive) to be less productive because they want to minimize a future tax. That is the reason America has a huge “estate planning” industry. This industry exists to advise people how to use their money less productively, which is why academics have found the big negative effects I cite in my column.

[…] other positive features mentioned in the column that are worth celebrating. Governor Bush’s plan eliminates the death tax, which is an especially punitive form of double taxation. His proposal also gets rid of the […]

[…] these premature deaths will only occur because the President is greedy for more revenue from a tax that shouldn’t even exist. Indeed, it’s worth noting that every pro-growth tax reform plan – such as the flat tax or […]

[…] these premature deaths will only occur because the President is greedy for more revenue from a tax that shouldn’t even exist. Indeed, it’s worth noting that every pro-growth tax reform plan – such as the flat tax […]

[…] about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting […]

[…] about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting […]

[…] about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting […]

[…] Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero. […]

[…] Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero. […]

[…] And for the not-so-obvious reason: Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero. […]

[…] Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero. […]

[…] Then there are provisions such as the 35 percent death tax. Is this bad news, because it is an increase from zero percent this year? Or is it good news because it is much lower than the 55 percent rate that was scheduled to take effect beginning next year? That’s hard to answer, though I know the right rate is zero. […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] criticized the death tax on many occasions, including one column in USA Today explaining the economic damage caused by this perverse form of double taxation, and I highlighted a few of the nations around the world that have eliminated this odious tax in […]

[…] professor Michael Graetz of Columbia University. It should go without saying, by the way, that the correct rate for the death tax is zero. It’s also worth noting that this is an issue that shows that incentives do […]

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